With Africa proving to be a particularly lucrative region for brands seeking licensing opportunities, we examine what rights holders need to know about trademark licences from a swathe of nations across the continent.
Africa is huge – the world’s second largest continent comprises 59 countries and surrounding islands, as well as a fast-growing population in excess of 1 billion. The population is young, increasingly urban, entrepreneurial and brand conscious. African consumers want genuine products, not the counterfeits that flood their informal markets. Yet Africa is not always the easiest place in which to set up shop, whether it be in the form of a manufacturing facility or a distribution centre. Many multinationals are wary of investing in countries of which they have little or no experience. This is why trademark licensing makes so much sense.
While it is impossible to carry out a single, detailed examination of trademark licensing across an entire continent, this article takes an in-depth look at licensing in some countries, while making some brief observations with regard to licensing in others. Finally, we offer some thoughts on how trademark licensing might be affected by free-trade zones – in particular, the recently signed African Continental Free Trade Agreement (AfCFTA).
Trademark licensing is recognised in Algeria and licences, which can be exclusive or non-exclusive, must be registered. Use by the licensee will be sufficient to defeat a non-use attack; the non-use term is three years.
Trademark licensing is recognised in Angola. However, licences must be in writing and must provide for quality control.
In Botswana, licences must contain quality-control provisions and must be implemented – failure to do so will mean that the licence could be declared invalid. Although recordal is mandatory, it is not required in order for use of the trademark by the licensee to be attributed to the licensor (eg, in non-use cancellation proceedings). Recordal is also unnecessary in order for the licensee to enjoy rights to join or to institute infringement proceedings.
Trademark licensing is permitted in Burundi and quality control is a requirement – if this is not exercised, a court can declare the registration abandoned. A licensee (whether exclusive or non-exclusive) can institute infringement proceedings if the owner fails to do so.
In Cape Verde, trademark licences must be in writing. Use by a licensee will be sufficient to defeat a non-use attack; the non-use term is five years.
Trademark licensing is recognised in Djibouti, although licences must be registered.
Trademark licensing is recognised in Egypt and recordal is possible. A licence has no effect on third parties unless it is recorded.
Eswatini (formerly Swaziland)
Quality control is a requirement for trademark licensing in Eswatini. While recordal is not mandatory, it is necessary if the use of the trademark is to be attributed to the licensor. A licensee can require the licensor to institute infringement proceedings and can sue in its own name. Interestingly, the minister of justice may, at their discretion, provide that licence contracts or certain categories of licences require their approval or face being invalid.
In Ethiopia, the recordal of licences is provided for and trademark licences must make provision for quality control. Use by a licensee will be sufficient to defeat a non-use attack; the non-use term is three years.
In Gambia, a trademark licence must provide for quality control and must be registered. A licensee can institute infringement proceedings if the owner fails to do so.
Licences in Ghana should be drafted extremely carefully, although the law regarding trademark licensing is fairly standard and establishes:
- provision for the recordal of licences;
- that agreements must make provision for quality control;
- that use by a licensee will be sufficient to defeat a non-use attack; and
- that the non-use term is five years.
However, a recent court judgment suggests that foreign trademark owners may need to take particular care when they enter into trademark agreements with local companies. In Beiersdorf Ghana Limited v The Commissioner General Ghana Revenue Authority Accra the case hinged on whether royalty payments that Beiersdorf Ghana – an authorised importer and distributor of Nivea products – had made to the German company that owns the Nivea brand, Beiersdorf AG, were a tax-deductible business expense. The payments had been made under a distribution licence agreement that had not been registered with the Ghanaian revenue authorities. The Ghanaian authorities had disallowed these deductions for tax purposes.
Beiersdorf Ghana argued that it needed the licence to use the Nivea trademark, which made the royalties a deductible business expense. It further argued that only technology transfer agreements must be registered. However, the Ghanaian authorities took the view that the agreement was a technology transfer agreement because it dealt with the import, sale and distribution of products and therefore more than simply the use of a trademark.
The judge agreed with the revenue authorities, stating that because the agreement referred to the use of “marketing and management know-how”, as well as the need to pass on “further experience and knowledge gained over the term of this agreement concerning the distribution of the products”, it fell within the realm of technology transfer.
The takeaway here is clear: seek specialist advice on trademark agreements in Ghana.
Trademark licensing is relatively well understood and established in Kenya. Section 31 of the Kenyan Trademarks Act provides the following:
- A licensee of a registered trademark can be registered.
- Quality control is a requirement for recordal.
- Use by the registered licensee is deemed to be use by the owner.
- The licensee can call on the owner to sue for infringement – if it fails to do so, the licensee can sue.
In preparing this article, we asked local practitioners for their views on trademark licensing. They told us that, while it is not mandatory to register a licence agreement in Kenya, recordal is highly recommended.
According to local lawyers, trademark licensing and/or licence recordal provides a cost-effective method to penetrate a new market and creates a revenue stream for brand owners. Ownership of the mark remains with the registered owner, while licensing protects the mark against the risk of cancellation for non-use. In addition, licensing protects the trademark against registration of the same mark (or variants) by the licensee.
Possible disadvantages include:
- the risk of misuse and dilution of the trademark as a result of inferior-quality goods or services being supplied under the brand;
- the risk of unscrupulous licensees registering the trademark or variants in neighbouring markets without the owner’s knowledge; and
- the risk that the licensee might become hostile towards the end of the licence period, especially if the owner wishes to enter the market directly or through another licensee.
Trademark licences must be recorded in Lesotho and quality-control provisions are required. Where the registrar is of the opinion that any clause in a licence agreement imposes “unjustified restrictions” with the consequence that the agreement is harmful to the economic interests of Lesotho, the registrar can require that the parties amend the agreement.
The licensing of trademarks is permitted in Liberia, provided that the owner has effective control over the licensee’s use of the mark.
In Madagascar, a trademark licence must be in writing and requires quality control. However, recordal is optional.
There is provision for the recordal of licences based on quality control in Malawi. Use by a licensee will be sufficient to defeat a non-use attack; the non-use term is five years.
In Mauritius, the licensing of registered trademarks is lawful only if there is effective quality control. A licence must be recorded in order to be effective against third parties. Use by a licensee will be sufficient to defeat a non-use attack; the non-use term is three years.
Exclusive and non-exclusive trademark licensing is allowed in Morocco. While recordal is necessary, use by a licensee will be sufficient to defeat a non-use attack; the non-use term is five years.
In Mozambique, a trademark licence must be recorded in order to have effect against third parties (eg, in infringement proceedings brought by the licensee or proof of use).
In Namibia, trademark licences must be made in writing. Licence recordal is not mandatory, but it is necessary for the licence to have effect against third parties. Quality control by the licensor is also a requirement. A licensee can sue for infringement unless the agreement provides otherwise.
Nigerian courts will not countenance appropriation by a local agent. In general, though, the law regarding licensing in Nigeria is quite similar to that of many other African countries that might be considered English-law countries. The recordal of licences is provided for and a recordal can be cancelled if it was wrongly made or made without sufficient cause. The use by a licensee will be sufficient to defeat a non-use attack; the non-use term is five years.
Piaggio v Autobahn Techniques Limited (Federal High Court, Lagos, 30 November 2017) was a significant decision with regard to licensing. Although the case dealt with a distributor rather than a licensee, it is of great interest to any trademark owner that wishes to enter into a licensing arrangement with a company in Nigeria.
The issue was whether Piaggio could successfully oppose applications that had been filed by its previous Nigerian distributor to register the trademark PIAGGIO. The court ruled in favour of Piaggio, declaring it to be the true owner of the trademark in Nigeria. The judge made the point that extensive promotion by the distributor does not “amount to automatic acquisition of proprietorship and goodwill”.
A similar approach is likely to be adopted in cases where a licensee attempts to steal its licensor’s trademark.
A licence can be exclusive or non-exclusive in the African Intellectual Property Organisation (OAPI) region. Licences must be in writing and must be recorded.
Licence recordal is possible but not compulsory in Rwanda. A licence has no effect against third parties until it is recorded and quality control is a requirement for recordal. Use by a licensee will be sufficient to defeat a non-use attack; the non-use term is three years.
Sao Tome and Principe
A licence must involve quality control and must be recorded in Sao Tome and Principe. Use by a licensee is deemed to be use by the owner and will be sufficient to defeat a non-use attack; the non-use term is five years.
Licensing provisions are sparse in the law of the Seychelles. Quality control is a requirement and failure to control quality can lead to the invalidity of the agreement and even the trademark registration.
In Sierra Leone, a licence must be in writing and must be recorded. Until it is recorded, the licence has no effect against third parties. Use by a licensee will be sufficient to defeat a non-use attack; the non-use term is five years.
South Africa has more trademark law jurisprudence than any other African country and is highly influential. For that reason, a number of aspects must be considered.
For example, the use of a registered trademark by a licensee is regarded as use by the owner. This means that goodwill and reputation generated through the use of the registered mark by the licensee accrue to the owner, even if the licence agreement does not address this issue.
However, this may be different if the licensee uses additional elements of branding or additional trademarks in relation to the licensed product. If those additional elements or marks are not themselves registered in the name of the licensor, the goodwill and reputation flowing from their use accrue to the licensee. It is best to ensure that all the distinctive elements to be used by the licensee are registered in the name of the owner and reflected in the licence agreement.
In addition, know-how and manufacturing licence agreements involving South African companies must specifically address trademarks. The South African Supreme Court of Appeal decision in Joest v Jöst illustrates this point. In this case, the agreement did not deal with the disputed trademarks and the South African licensee registered the foreign licensor’s trademark in its own name. The foreign licensor had to incur significant legal costs to prove that it did in fact own the trademark in South Africa.
South African courts are reluctant to find that a local company owns a trademark that it has used under licence, even where the foreign licensor exercised little control over the local licensee. In the case of Reynolds Presto Products v PRS Mediterranean, the judge focused on ethics. Here, a former licensee registered the trademark of its former licensor. Although the original licence agreement between the parties had a clause stating that the licensee would never adopt the trademark for itself (even after termination), that agreement had been replaced by a later agreement, which did not repeat the clause. However, the judge stated: “While strictly speaking the contractual obligation... may well have expired... the sharp reliance on those terms... falls short of the ethical standards of acceptable commercial behaviour.”
Nevertheless, there are exceptions. The general rule is that the distributor or licensee cannot claim ownership of the trademark of the manufacturer or licensor. However, it may be different if the goods have been marketed and sold in such a way that the public associates the trademark with the distributor or licensee, rather than the manufacturer or licensor. This is consistent with the decision in the famous UK case, Scandecor.
Turning to the issue of bare licensing, or licensing without quality control, this is not necessarily fatal, but it is inadvisable. In South Africa, quality control is not a statutory requirement, although it is in certain other African countries. However, bare licensing can result in the trademark losing distinctiveness and being used in a manner that causes confusion, which could leave the registration open to attack.
Also questionable is the licensing of unregistered marks. Indeed, whether an unregistered trademark can be lawfully licensed is undecided in South Africa. The general view is that it probably can, provided that there is quality control. However, it is still best to register the mark.
There are a number of issues related to licensing in South Africa that brand owners should bear in mind:
- Licence recordal – this is advisable but not mandatory, although it is not mandatory for a licence to be recorded or to be in writing. However, there are often advantages to recordal, especially for the licensee.
- Licensee litigation – unless the agreement provides otherwise, the licensee can sue for infringement after giving notice to the licensor of its intention to do so. This can and should be excluded by agreement.
- Sub-licensing – this is permissible, but the issue of what happens to a sub-licence when the head licence terminates is a tricky one. The UK decision in VLM Holdings Limited v Ravensworth Digital Services Limited suggests that the sub-licence does not invariably terminate when the head licence terminates. A South African court could follow this approach, but the issue is best dealt with in the agreement.
- Assignment of the trademark – there are questions over this issue; it is possible that the recordal of the licence will be deemed to be constructive notice of it, although there is case law that suggests otherwise.
- Product liability – a licensor can, in certain circumstances, be held liable for harm caused by goods manufactured by the licensee. To avoid liability under the South African Consumer Protection Act, the licensor should require the licensee to state on the goods that it is the producer. Suitable indemnities should also be agreed.
- Competition law – licensing practices that result in anti-competitive behaviour may contravene the South African Competition Act. Examples include:
- insisting that improvements or new branding material produced by the licensee are assigned to the licensor free of charge;
- forcing perpetual licences on licensees; and
- manipulating markets with excessive royalty rates or minimum supply requirements.
- Exchange control – these regulations apply where South African licensees pay royalties to foreign licensors. Acceptable royalty rates are 0% to 4% of the sale price for consumer goods and 0% to 6% for intermediate and final capital goods.
- Government approval – if the trademark that is to be licensed was developed with public funding, the IP Rights from Publicly Financed Research and Development Act may require that the recipient of the funding obtain approval for licensing from the relevant government agency.
- Withholding taxes – at present, withholding taxes on royalty payments to be made to foreign licensors apply, except where there are double taxation agreements.
- Transfer pricing – these rules apply to cross-border licences between related parties.
A licence must involve quality control and must be recorded in Sudan. Use made by a licensee is deemed to be use by the owner and is sufficient to defeat a non-use attack; the non-use term is five years.
In Tanzania, licensing is recognised if there is quality control. There is provision for the recordal of licences and use by a licensee is deemed to be use by the owner. A recorded licensee is entitled to sue for infringement if the owner fails to do so. Use by a licensee will be sufficient to defeat a non-use attack; the non-use term is three years.
Exclusive and non-exclusive licences are provided for in Tunisia. Trademark owners may require a court order in order to terminate a licence.
There is provision for the recordal of licences in Uganda. Use by a licensee will be sufficient to defeat a non-use attack; the non-use term is three years.
In Zambia, there is provision for the recordal of licences. Use by a licensee will be sufficient to defeat a non-use attack; the non-use term is five years.
Licensing is recognised in Zanzibar, provided that there is quality control.
A licence must be recorded in order to have effect against third parties in Zimbabwe (eg, in infringement proceedings brought by the licensee or proof of use).
Free-trade zone licensing conundrum
In Africa, the issue of free-trade zones has been much in the news since AfCFTA, which was signed on 30 May 2019, came into effect on 7 July 2019. The result is a free-trade zone covering 52 of the African Union’s 55 member countries – the three missing countries are Nigeria, Benin and Eritrea, although there are indications that Nigeria will sign up.
The purpose of AfCFTA is to bring about economic integration and enhance intra-continental trade. Member states will be required to drop 90% of their tariffs for African imports – as for the remaining 10%, member states will be able to retain these for a period of 10 years in order to protect their major industries.
It is likely that the member states will need to tackle difficult issues, including intellectual property. When this comes up for discussion, member states will need to consider the fact that there are various differences in the way that African countries treat some of the more fundamental aspects of trademark licensing. Many countries require licences to be recorded in order for use by the licensee to inure to the benefit of the licensor, while some have specific quality-control requirements. The situation is therefore more favourable to trademark owners in some countries than in others.
These differences present opportunities for trademark owners, which may feel that it makes sense to concentrate licensed manufacturing in a country or countries where trademark licensing laws suit them, safe in the knowledge that the goods manufactured there can easily be exported to the rest of Africa. However, the non-existence or relaxed customs arrangements that will no doubt come with AfCFTA will also present opportunities to counterfeiters and parallel importers.
These differences may prompt member states to consider harmonisation. It is conceivable that they may look to the model free-trade agreement that INTA prepared some years back – this model agreement addresses some of the issues around licensing and makes specific proposals for the harmonisation of licensing provisions in national laws.
As an increasing number of multinational companies start to see the benefits of doing business in Africa, trademark licensing in the region is likely to grow in importance. By and large, the licensing regime is fairly benign and familiar, with quality control probably being the most critical aspect. Many of the considerations that we raised with regard to licensing in South Africa are likely to become increasingly applicable throughout Africa, although AfCFTA certainly introduces an element of the unknown.
Duncan Maguire, Jeremy Speres
Spoor & Fisher, Jersey
This article first appeared in World Trademark Review. For further information please visit https://www.worldtrademarkreview.com/corporate/subscribe